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Net2Phone Surges on Earnings, Qualcomm Deal

Part of the reason for the company's strong showing was a sharp increase in users.
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Shares of



gained 20% Monday on the back of a

deal with


(QCOM) - Get Qualcomm Inc Report

and in anticipation of its quarterly financial report.

Net2Phone did not disappoint Wall Street. After the stock market closed, the Internet telephone technology company reported that it lost a nickel a share less than Wall Street expected.

Net2Phone's stock gained 10 7/8 in regular trading to close at 63 7/8. In after-hours trading, the stock rose another 4 5/8 to 68 1/2.

In the deal, Qualcomm, a developer of digital wireless communications products and services, will market Net2Phone's Internet telephone service, packaging Net2Phone's V.10 software into Qualcomm's Eudora e-mail software. Users can also access the Net2Phone service with a new Eudora calling card.

"We look forward to enhancing our customers' experience by adding the voice component to their online communications," said Jeff Belk, vice president of Qualcomm and general manger of Eudora products. As part of the deal, Net2Phone will also help sponsor a new version of Eudora that features messages from its sponsors.

In this way, Eudora's 20 million subscribers can make telephone calls via the Internet from a computer, telephone or fax machine at low or no cost. The deal "is another situation where Net2Phone has locked up yet another exclusive and preferential contract with top Web properties," said David Levy, an analyst at

Chase H&Q

. He rates Net2Phone a buy and his firm was a lead underwriter for Net2Phone's initial and secondary offerings.

Net2Phone, based in Hackensack, N.J., already has similar deals with

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. "Net2Phone benefits from any widespread distribution, and in Qualcomm they've got that plus a technologically sophisticated user base," said Robert Fagin, an analyst at

Bear Stearns

. "With every incremental deal, Net2Phone puts up additional barriers for its competitors."

Fagin rates Net2Phone an attractive and his firm was also an underwriter for both of the company's equity offerings.

For the first quarter of its 2000 fiscal year ended Oct. 31, Net2Phone reported a net loss of $5.4 million, or 11 cents a diluted share, compared to $1.2 million, or 4 cents a share, a year earlier. A consensus of analysts polled by

First Call/Thomson Financial

expected a loss of 16 cents. The net income numbers exclude $2.9 million in non-cash compensation expense for stock options the company issued.

Revenue rose to $13.1 million from $5.7 million a year ago.

Part of the reason for the company's strong showing was a sharp increase in users. Total minutes grew to 85.3 million minutes, an increase of 147% from the 34.6 million minutes for the same quarter last year. Its customer base also rose 20%, to 390,000, over last quarter.